2. Payday lenders make most of their profits by trapping borrowers in a cycle of revolving debt.

3. Payday lenders have created schemes to disguise these transactions so that they appear to be made by a financial institution chartered in another state.

4. Predatory payday lending has increased rapidly over the last several years.

(B) PURPOSE—This law is enacted to protect consumers from predatory terms and tactics employed in the lending and collection of payday loans.

SECTION 3. PAYDAY LENDING REFORM

After section XXX, the following new section XXX shall be inserted:

(A) PAYDAY LENDING PROHIBITED

1. It shall be unlawful for any person to engage in any business that consists in whole or in part of making, offering, arranging or acting as an agent in the making of loans of $3,000 or less unless:

a. The lender is a bank regulated by [insert citation to state law], a credit union regulated by [citation], or a residential mortgage lender regulated by [citation]; or

b. The loan is a credit card charge regulated by [citation], a retail installment loan regulated by [citation], a loan for the purchase of a motor vehicle regulated by [citation], a tax refund anticipation loan regulated by [citation], or a pawnbroker’s loan regulated by [citation].

2. It is a violation of this section to purport to be the agent of an entity that is permitted to make such loans if the purported agent, instead of the entity, holds, acquires or maintains the predominant economic interest in the revenues generated by the loan.

3. If the loan is a tax refund anticipation loan, it must be issued using a borrower’s filed tax return and the loan amount cannot exceed the amount of the borrower’s anticipated tax refund. Tax returns that are prepared but not filed with the proper government agency will not qualify for a loan exemption under this paragraph.

4. No loan transaction shall include the deferred presentment of a check or other negotiable instrument; the selling or providing of an item, service or commodity incidental to the advance of funds; or any other element introduced to disguise the true nature of the transaction as an extension of credit.

5. This section shall not apply to persons who do not hold themselves out to the public as being in the business of making loans.

(B) ENFORCEMENT

1. Any person who violates this section shall be guilty of a [Class A misdemeanor], punishable by imprisonment for not more than one year or by a fine not to exceed $10,000, or both. Each loan transaction shall be deemed a separate violation of this section.

2. If a person has been convicted of violations of this section on two prior occasions, then all subsequent convictions shall be considered felonies punishable by imprisonment for up to five years or a fine not to exceed $100,000, or both.

3. A civil action may be brought on behalf of an individual borrower or on behalf of an ascertainable class of borrowers. In a successful action to enforce the provisions of this chapter, a court shall award a borrower, or class of borrowers, costs including reasonable attorneys’ fees.

4. The Department of [Finance] shall promulgate such regulations as are necessary to enforce this section.

SECTION 4. SEVERABILITY

The provisions of this Act shall be severable, and if any phrase, clause, sentence or provision is declared to be invalid or is preempted by federal law or regulation, the validity of the remainder of this Act shall not be affected.